Government Operations Committee on May 31st, 2016

[Kelly McCauley, Conservative, Edmonton West, AB]

So changing the way the depreciation was done has pretty much cleared up that issue?

[Stein Helgeby]

Yes.

[Kelly McCauley, Conservative, Edmonton West, AB]

Perfect.

[Stein Helgeby]

We still have leave liabilities, for example, accrued and appropriated for. To start with, those are much smaller amounts, but we haven't seen any problems of the same sort that we saw with depreciation.

[Lembit Suur]

We've also introduced a system whereby we lapse old appropriation bills. The appropriation bills going back three or more years are now automatically lapsed, so people's capacity to draw down cash from old appropriation authorities issued by the Parliament has been limited as well. That also goes to regulating the amount of cash that's held in the system.

[Kelly McCauley, Conservative, Edmonton West, AB]

Excellent. You gentlemen have it together.

How big an issue was it with regard to senators, public servants, and so on getting used to a new system like this? To a lot of us coming from the outside world, the accrual system is much more common, but I was reading, again in our briefing notes, that switching over caused quite a difficulty in understanding the papers and the budgets, etc.

[Stein Helgeby]

Yes. The—

[Kelly McCauley, Conservative, Edmonton West, AB]

Has that been mostly solved through training or is it still an ongoing issue?

[Stein Helgeby]

I would say that there are always issues to do with understanding complex financial statements. There are people who are very comfortable with seeing a set of financial statements, seeing notes to them, and working their way through them. There are others who come with a background that makes them perhaps more familiar with a cash flow statement, but not so familiar with a balance sheet, for example.

We always have those issues, but it was a very big transition to go from a full cash-based approach with no balance sheet in the 1997-98 budget to a full set of financial statements with a proper balance sheet in the 1999-2000 budget. The extent of the change—system, people, understanding—can't be underestimated or otherwise neglected.

We find that on the whole tend ministers to be more comfortable talking about cash, because in one sense it's an easier concept to use in a quick reference mode. It's harder to talk about debt, for example, and net debt, or assets and liabilities, or to talk about revenue versus expenses. It's harder to talk about those things, so much of the public debate, if you like, is still focused on the cash version of our numbers, which are produced as part of our statements, but the analysis often goes down into the accrual numbers.

[Lembit Suur]

To give an example, when accrual budgeting was first introduced, the primary measure of the state of the budget was fiscal balance, and that remained the measure for about three years, I think.

Is that right, Stein?

[Stein Helgeby]

Yes.

[Lembit Suur]

Then the government returned to talking about the budget balance in cash terms, because that was an easier number to explain, so even though we have modified accrual budgeting, the primary measure of the budget is a cash measure. I think it's fair to say—

[The Chair, Conservative, Tom Lukiwski]

Thank you. I'm sorry, gentlemen. I'm going to have to interrupt there. Perhaps in the second round of questioning we can get back to the conclusion of your explanation, but we do have a bit of a condensed timeline to work with tonight.

I'll go to you, Mr. Weir, for seven minutes, please, for your questions.

[Erin Weir, NDP, Regina—Lewvan, SK]

Thanks very much for joining our committee.

I think that one of the key differences between the Canadian and Australian systems is of course that in Canada the main estimates come out at a different time than the budget does, whereas in Australia they're more synchronized.

In Canada, we also have three rounds of supplementary estimates. I'm wondering if you could speak to how many different supply periods there are in Australia? Do you have anything like supplementary estimates?

[Stein Helgeby]

I might say a few things on this, and Mr. Greenslade may want to add to that.

We have our main estimates in May. Traditionally, halfway through the year we will make adjustments through what are called “supplementary estimates”, and they come with their own appropriation bills. If we need to, we will also introduce other adjusting bills toward the end of the year, including, for example, in May. We don't do it every year, but that's a typical pattern.

I'll ask Mr. Greenslade if he wants to add to that.

[Alan Greenslade, First Assistant Secretary, Financial Analysis, Reporting and Management, Australian Government]

I think that's right. Essentially there are two main phases, and there's one additional facility that government has. The finance minister can make an advance in exceptional circumstances where there's a need for expenditure that hasn't been foreseen. That's capped, but there is also that facility.

[Erin Weir, NDP, Regina—Lewvan, SK]

Has that number of supply periods been consistent over time or was it changed fairly dramatically through the process you've described?

[Stein Helgeby]

I think it's been fairly consistent, to be honest.

[Alan Greenslade]

The timing can alter slightly because it's linked to an economic update, so if economic circumstances change, it might move by a month or so either way, but essentially it's around the mid-year reassessment of estimates and of any additional expenditure requirements.

[Erin Weir, NDP, Regina—Lewvan, SK]

Another issue that our committee has been seized with is the question of cash versus accrual accounting. The more I hear, the more it sounds to me as though the Australian system is actually fairly similar to the Canadian system in that respect. Our annual budget and consolidated financial statements are on an accrual basis, but our spending estimates are on a cash basis, with maybe some allowance for accrual concepts.

It sounds as though that's essentially where Australia stands, with a kind of an accrual budget but with the individual appropriations expressing more a cash concept. Is that right? If it is right, are you aware of other countries that would provide all of their departmental estimates or appropriations on an accrual basis?

[Alan Greenslade]

I think broadly you have it right. I would emphasize Mr. Helgeby's point earlier on, which was that essentially we have an integrated system. Everything is run on an accruals basis, and cash is derived from that, so it's not as if we're running cash in any way separately. It comes out of the same estimates, the same process.

There are other countries that operate similarly. I think New Zealand certainly does. The United Kingdom also has a broadly similar approach. So there are some, but I think you're right, in that a lot of other countries do seem to struggle with the connection between accrual reporting and not quite getting to accrual budgeting. Australia has been fortunate since quite some time ago because of the series of reforms whereby they were basically integrated. We see no real difference between the process we go through when we're preparing an accrual budget and when we report. We're actually running the same technical processes. We're running our same central budget management system, which pulls together all this information.

[Erin Weir, NDP, Regina—Lewvan, SK]

Yes. It seems that some are very keen on moving to full accrual accounting, but it sounds as though the Australian experience was to actually take a bit of a step back from that, at least as far as the departmental appropriations were concerned.

[Stein Helgeby]

If I may, I'll make a comment on that. I think our experience is that the value of accruals and accrual concepts is in the depth it gives to financial statements and the possibilities it opens up for financial analysis.

If I can take one very stark example, prior to going to an accrual basis, we would not have had a clear understanding of the liability attached to our public sector superannuation arrangements, which back in those days were in a fully defined benefit scheme. We now measure and value those things. Two things have happened on the back of that information, which could not have happened, I think, without that information.

The first is that we've moved systematically to close our defined benefit scheme, to manage the liability by effectively putting a lid on it. The second is that, back in the middle of the last decade, the government of the day put in place a future fund, which is effectively an accumulation of surpluses put into a special fund in order to fund the liability. It's sometimes characterized as a sovereign wealth fund, but it's actually more limited than that. Now, would government have taken such big steps on such big issues if they hadn't had some confidence that they understood what the numbers were, and if they hadn't had confidence that they were really tackling the right issue in the right way? My suspicion is no.

I think the value is in that: what it adds to analysis. Pragmatically, I think, appropriations for departments are simply about what is the most sensible way by which you get resources to the right place so that people can deliver programs, in such a way that Parliament is happy that it has discharged its responsibilities of ensuring that monies are only taken from consolidated revenue against a proper appropriation.

[The Chair, Conservative, Tom Lukiwski]

Thank you, gentlemen.

Mr. Whalen, please, for seven minutes.

[Nick Whalen, Liberal, St. John's East, NL]

Thank you for joining us.

If I may, I'm going to focus a bit on the process by which Australia has integrated the timing for the budgets and the estimates with respect to the fiscal year commencement, which I guess for you guys is on July 1, and also on the types of reports that might go to Parliament to be debated in Parliament. What type of disclosure is given only to cabinet versus perhaps what is more broadly disseminated?

My understanding is that around October of the previous year is the time when the prime minister would write to the different representatives and ministries and ask for proposals. Are the letters from the prime minister to the ministries, and the reply letters from the ministries to the prime minister, open public documents, and are they debated in your Parliament?